Possibly An Insurance Jewel
No one seems to have heard of this stock, and sure, its probably not the most exciting story, but we believe at current prices, FIG is not priced to fair value.
To summarise FIG, the Company sells life insurance products through direct channel sales. This means they’re able to offer simple and affordable products. These include funeral expenses, accident insurance, life insurance, income protection…
In 2015, FIG acquired Spectrum – a life insurance focused dealer group who utilises indirect sales channels. This we see as very synergistic!
So, why do we think this will be a winner? Well there are a bunch of positive trends going for FIG:
- Australian population in comparison to other developed nations are under-insured
- Australian economy keeps on growing with wealth building equating to more disposable income
- Policy premiums are positively correlated to inflation and Australian inflation has been positive for many years
- Population growth (forecast to grow by 25% to 2025)
- Ageing population and premiums charged tend to increase with age; and
- Prolonged workforce participation with retirement age pushed further and further away.
Not a bad set of positive factors which equate to 10% insurance growth per annum.
Alongside, FIG fundamentally looks very attractive, valuation-wise, and really, you can’t fault it’s FY17 result or its FY18 outlook, so the weakness we have seen presents a good buying opportunity. We see the weakness due to a negative sentiment associated with the insurance sector, escrowed shares released, and lack of interest in a pretty simple but boring insurance business – which is very competitive.
~$26.9M cash & equivalents, no debt, and the results as below:Based on their FY17 earnings, they are trading on a 9.7x multiple at 65 cents. With a positive outlook, you would think with this level of growth, this story has some potential for a re-rating.
Technically speaking, we’d like to see a stronger support base formed before entering!